29th May 2018 07:15
LONDON (Alliance News) - Moody's Investors Service early Tuesday downgraded the Baa3 rating to Ba1 on the senior unsecured debt and programme of GKN Holdings PLC, the finance, investment and holding company of Melrose Industries PLC's new subsidiary GKN PLC, and said it is considering a further downgrade.
Back in April, engineer GKN accepted a GBP8.4 billion takeover bid from industrial turnaround specialist Melrose.
Following the acquisition, Moody's said it expects GKN's financial leverage to exceed the guidance range for a Baa3 rating, due to the weak operating performance.
At the end of April, Melrose has reported a decline in GKN's quarterly operating profit, which fell to GBP181.5 million in the three months ended March from GBP215.1 million for the same period in 2017.
"Downgrading GKN reflects our expectations that its leverage will rise beyond levels commensurate with an investment grade rating following its recent acquisition by Melrose Industries, due to GKN's already high standalone leverage, declining operating profits and Melrose's more aggressive financial policy," said Moody's Senior Credit Officer Matthias Heck.
In addition, Moody's said that GKN's ratings could be further downgraded after Melrose gives further guidance on future plans for GKN in the first week of September. The review will focus on the impact of new owner Melrose on GKN's financial policy, funding structure, and business profile.
"The subsequent downgrade review process will focus on the impact Melrose, the new shareholder, will have on GKN's financial policy, funding structure, and its business profile," Heck said.
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